EUR/USD Rises After Fed Cut and ECB Pause, Traders Eye Buy-on-Dip Setups

Overview: Fed Cut, ECB Hold and the EUR/USD Reaction

EUR/USD traded around 1.1775 in the early Asian session after the Federal Reserve cut the federal funds rate by 25 basis points in December to 3.50%–3.75%. The Fed's easing — part of a cumulative 75 bps of cuts in 2025 — has weakened the dollar, while the European Central Bank's decision to hold rates and signal persistence has kept the euro supported. Money markets assign under 10% probability to a 25 bps ECB cut in February 2026, reinforcing the asymmetric near-term outlook.

What moved prices

Short-term drivers behind the euro's strength include: the Fed's dovish pivot that increases the likelihood of further USD weakness, and ECB communications that emphasize a more cautious approach to easing. Together these dynamics have created a bullish short-term bias for EUR/USD, with traders pricing a higher path for the cross unless US data or policy commentary changes the picture.

Key levels and technical context

EUR/USD is trading above the nearby support at 1.1750 and currently around 1.1775. Traders are watching the following levels:

- Immediate resistance: 1.1800–1.1820. A sustained move above 1.1820 would open the way to 1.1850.
- Immediate support: 1.1750, then 1.1720. A break below 1.1720 could expose 1.1680 and increasing USD strength.

Market Risks and Catalysts

Risks to the bullish view

Key risks that could quickly reverse euro gains include:

- Earlier or larger-than-expected ECB easing, which would undermine the euro.
- Stronger-than-expected US economic data or a pause in the Fed's cutting cycle that could re-strengthen the dollar.
- Risk-off flows or geopolitical shocks that revive traditional USD safe-haven demand.

Catalysts to watch

Important upcoming items for traders include US macro releases (inflation and payrolls), ECB and Fed commentary from governors, and money-market pricing of future rate moves. Continued pricing of additional Fed cuts would likely maintain downward pressure on the USD and support higher EUR/USD levels.

Trading Ideas and Execution

Buy-on-dip strategy

With the current short-term bullish bias, a conservative approach is buy-on-dip between 1.1720–1.1750 with tight risk controls. Traders may place initial targets near 1.1820 and scale out approaching 1.1850. Use stop-loss placement below the swing low (e.g., below 1.1680) to protect against trending USD strength.

Event-driven alternative

If stronger US data or hawkish Fed commentary appears, consider a short-term short if EUR/USD fails to reclaim 1.1750 convincingly. Trade size should reflect the possibility of rapid reversals around major economic prints.

Execution tools and automation

Retail traders can benefit from combining fundamental analysis with disciplined execution. Automated trading tools help enforce risk rules and manage entries and exits across time zones. For forex-specific automation consider platforms such as the Forex Trading Bot or the Trade Assistant Bot for order management and strategy automation.

Broader implications for multi-asset traders

Currency moves can flow into other markets. USD weakness typically supports commodity prices and risk assets; crypto markets may also react to dollar trends and liquidity conditions. Traders active in crypto trading and forex trading should monitor correlations and adjust exposure accordingly. For traders focused on digital assets, integrating cross-asset signals into an automated trading plan can be valuable.

Conclusion

The Fed's December cut and the ECB's decision to hold have created a near-term bullish bias for EUR/USD, with buy-on-dip opportunities between 1.1720–1.1750 while risks from surprise ECB easing or stronger US data remain. Traders should combine macro monitoring with clear risk controls and consider automated trading to manage executions across sessions.

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